Ginkgo Bioworks Holdings, Inc. — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023. Ginkgo provides cell-engineering research and development services and biosecurity products and services through Concentric by Ginkgo. Financial figures below are in U.S. dollars; millions unless noted.
Financial performance and liquidity
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $55.4 | $66.4 | $216.7 | $379.4 |
| Operating loss | $(286.4) | $(654.9) | $(686.3) | $(1,978.1) |
| Net loss | $(302.9) | $(670.1) | $(681.2) | $(1,933.3) |
| Net loss per share | $(0.16) | $(0.41) | $(0.35) | $(1.19) |
| Adjusted EBITDA loss | $(83.8) | $(71.9) | $(259.6) | $(97.1) |
- Revenue mix: Cell Engineering revenue was $37.2 million in Q3, up 51% year over year, and $116.6 million for nine months, up 29%. Biosecurity revenue was $18.3 million in Q3 and $100.1 million for nine months, down 56% and 65%, respectively.
- Biosecurity gross contribution: Revenue less reported segment cost of revenue was approximately $11.3 million, or 62%, in Q3 and $52.8 million, or 53%, for nine months. These are calculated from the filing’s segment revenue and cost figures and are not company-wide margins.
- Cash flow: Operating activities used $237.7 million in the first nine months, compared with $147.7 million in 2022. Investing activities used $34.0 million; financing activities used $2.6 million. Cash, cash equivalents and restricted cash declined $275.0 million during the period.
- Liquidity and balance sheet: Cash and cash equivalents were $1,049.2 million at September 30, 2023; current assets were $1,141.8 million and current liabilities $168.5 million. Total liabilities were $773.7 million and stockholders’ equity $1,252.7 million. The balance sheet presents operating lease liabilities and other obligations; it does not show a conventional borrowing balance.
- Margins and expense context: The filing does not provide a consolidated gross margin. Reported operating loss includes substantial R&D and G&A expenses and a $96.2 million lease-asset impairment.
Material changes versus the prior comparable period
- Revenue fell 17% in Q3 and 43% in the first nine months, principally reflecting the sharp decline in Biosecurity service revenue as COVID-19 school testing ended in Q3 2023. Biosecurity product revenue increased modestly.
- Cell Engineering growth reflected progress on existing and new programs. Q3 New Programs increased to 21 from 15; Current Active Programs rose to 116 from 85. For the nine-month period, these were 55 versus 39 and 139 versus 92, respectively.
- GAAP net losses narrowed substantially, mainly because stock-based compensation was much lower than in 2022, when previously modified equity awards generated unusually high expense. Stock-based compensation was $52.6 million in Q3 versus $563.1 million and $187.0 million for nine months versus $1,822.5 million.
- Despite the lower GAAP loss, Adjusted EBITDA loss widened to $83.8 million in Q3 from $71.9 million and to $259.6 million for nine months from $97.1 million.
- Investment losses included a $33.0 million impairment of Genomatica preferred stock in Q3 and nine-month 2023 results. Lab-equipment impairments were $25.2 million for the nine-month period.
Outlook, commentary, risks and unusual items
- Management said $1.049 billion of cash and cash equivalents was expected to fund projected operations for at least 12 months from the filing date. The company also said it expected expenditures to increase with R&D, platform investment, hiring, Biosecurity development, acquisitions and public-company costs. No numeric revenue or profitability guidance is provided.
- Management expects future Biosecurity revenue to rely more on biomonitoring and bioinformatic support services through domestic and international partnerships. The filing emphasizes uncertainty about demand, funding and the cost of scaling these offerings after COVID-19 testing diminished.
- Zymergen: Zymergen and certain subsidiaries filed for Chapter 11 on October 3, 2023; Ginkgo and its other subsidiaries did not. Ginkgo expected to deconsolidate Zymergen effective that date and anticipated a non-cash loss and possible additional costs in Q4. Its stalking-horse bid for substantially all of Zymergen’s intellectual property included $5.0 million cash, possible assumption of a facility lease with $37.4 million of remaining minimum commitments, and employment-related commitments. The bid remained subject to court approval and competing bids. Ginkgo stated its existing non-exclusive license was not affected.
- Google Cloud agreement: The five-year AI and cloud partnership carries minimum cloud-purchase commitments totaling $289.0 million remaining as of September 30, 2023. Google Cloud may provide up to $56.3 million in cash upon achievement of milestones; receipt is conditional, and timing was expected over three years.
- Controls: Previously identified material weaknesses in internal control over financial reporting remained, and management concluded disclosure controls and procedures were not effective as of September 30. Management nevertheless stated the financial statements fairly present the company’s results in accordance with GAAP.
- Other risks and contingencies: The filing highlights ongoing Zymergen-related litigation and government information requests, customer and related-party concentration, reliance on customer commercialization and non-cash consideration, investment valuation and liquidity risk, potential funding needs, and regulatory, biosafety, intellectual-property and cybersecurity risks. Ginkgo reported a multi-class share structure with concentrated voting power.
Most important facts for investors to verify
- Cash runway against the continuing operating cash outflow and management’s stated expenditure plans.
- Whether biomonitoring and bioinformatic services can replace lost COVID-19 testing revenue, and the economics and funding of those programs.
- The cash realizability and valuation of non-cash customer consideration, investments and related-party arrangements.
- Google Cloud commitment schedule, cancellation costs, and the conditions for receiving milestone funding.
- Outcome and financial effects of Zymergen’s bankruptcy, including deconsolidation, the asset auction, lease exposure and anticipated Q4 loss.
- Progress in remediating internal-control material weaknesses and the effect of customer concentration and high-vote Class B shares on investor risk.